Value Plays Or Value Traps? J Sainsbury plc, Persimmon plc & Royal Bank Of Scotland Group plc

Today I am looking at the investment prospects of three FTSE 100 giants.

Out of date

Grocery play Sainsbury’s (LSE: SBRY) has seen investors flock back through the doors in recent weeks. From visiting lows of 223.7p per share back in January, the stock has shot 26% higher to around 280p, taking in one-year peaks in the process.

Despite this stellar rise, however, Sainsbury’s still appears a brilliantly-priced stock pick on paper at least. The City expects the chain to endure a further 3% earnings dip in the year to March 2017, before returning to growth with a 3% advance in the following year.

These numbers leave Sainsbury’s dealing on P/E ratings of 12.4 times and 12.1 times correspondingly, comfortably within the benchmark of 15 times that represents attractive value.

Meanwhile, dividend yields of 3.8% and 3.9% for 2017 and 2018 respectively sail above the FTSE 100 average that stands around 3.5%.

But I believe Sainsbury’s remains an unappealing pick even at these prices. Sure, sales at the business may have picked up more recently, and the chain is the only one of the ‘Big Four’ supermarkets to see revenues advance.

However, sales growth remains relatively subdued — checkout activity advanced just 0.5% in the 12 weeks to February 28, according to Kantar Worldpanel — and conditions are only likely to get tougher as the discounters expand and the profits-crushing price wars intensify.

Construct sterling returns

Unlike Sainsbury’s, I believe Persimmon (LSE: PSN) represents stunning value for money for both growth and income chasers.

Fears over the stability of the buy-to-let market have subdued investor appetite for the housebuilding sector in recent times. And this week the Bank of England announced plans to introduce further lending rules on landlords — including an assessment of their wider incomes — to cool the breakneck pace of this segment. This could have huge impact on home sales in the years ahead.

Regardless, I believe the likes of Persimmon should continue to generate stunning revenues growth. Favourable favourable lending conditions and improving income levels should continue driving demand from private homebuyers, in my opinion, increasing the strain on an already-inadequate housing stock.

The City shares this view, and expects Persimmon to print earnings growth of 2% and 8% in 2015 and 2016 respectively, resulting in mega-low P/E ratings of 11.8 times and 11.1 times. And dividend yields of 5.2% and 5.3% for these years underline the firm’s splendid value for money.

Bank getting bashed

Market appetite for Royal Bank Of Scotland (LSE: RBS) has continued to soften as the fears surrounding the outcome of the ‘Brexit’ referendum have exacerbated existing jitters over the bank’s long-term growth profile.

The share price struck fresh five-and-a-half-year lows this week below 220p, and I see no reason for RBS to pull higher any time soon. Aggressive asset shedding since the government bailout of way-back-when has significantly dented the firm’s earnings potential. Meanwhile, the bank’s bottom line also continues to be pounded by a steady rise in PPI-related penalties.

The City expects RBS to endure a 37% earnings slide in 2016, although this still produces a low P/E rating of 11.8 times. And a predicted 24% rise in 2017 pushes the multiple to a mere 9.9 times.

However, I reckon there are plenty of flies in the ointment that could jeopardise predictions of sterling earnings improvement at RBS, in both the near-term and beyond.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.